When experts cheat at Bayh-Dole

In the classic guide to cheating at cards, The Expert at the Card Table, the point gets made that an expert cheater can cheat regardless of the watchfulness of anyone who expects him or her to cheat. An expert cheat can get away with cheating, even with with expert watchfulness.

Perfection in performing the “blind” shuffle, whether the old-fashioned hand shuffle or the “riffle” supplemented by a thorough knowledge of “blind” cutting, makes it impossible for the smartest card handler living to determine whether the procedure is true or “blind.”

The only remedy against playing against “experts” is this:

There is one way by which absolute protection against unknown advantages may be assured, that is by never playing for money.

In Bayh-Dole, we encounter the “expert at the table” in the form of patent brokers who have turned a right to keep inventions made with federal support if they find a legitimate way to acquire those inventions into a wildly broad claim on faculty inventions–and using a misrepresentation of Bayh-Dole as the excuse to make the claim. It’s just that the misrepresentation is done so slickly that only someone who knows Bayh-Dole through and through can detect it. Consider:

As a result of this law, universities retain ownership to inventions made under federally funded research.

See? How about this:

In 1980, Congress enacted the Bayh-Dole Act, permitting the University to own inventions and patents made on federal grants.

Or this:

The University is entitled to retain ownership of any inventions created as a result of federal funding…

Do you see the sleight of hand? These statements all make it appear that “retain” means “take ownership of” or that somehow Bayh-Dole gives universities the first right of ownership. None of that is true.

Bayh-Dole can be made to give the appearance that it requires universities (and other contractors) to own inventions made with federal support, or gives universities some special privilege to decide what to own–and the scheme would have worked, but for the addition of “of the contractor” in the definition of subject invention. It’s all sleight of hand–and it’s by the purported “experts.” That is, the experts are willing to deceive.

A subject invention is an invention that a contractor has acquired and is also a patentable invention made with federal support. Bayh-Dole gives no special privilege for a university or other prime contractor to acquire such an invention. Bayh-Dole and its default patent rights clause come into play only after a contractor has come to own an invention made with federal support.

Look: here’s the basic exchange in Bayh-Dole, 35 USC 202(a):

Each nonprofit organization or small business firm may, within a reasonable time after disclosure as required by paragraph (c)(1) of this section, elect to retain title to any subject invention.

. . .

The rights of the nonprofit organization or small business firm shall be subject to the provisions of paragraph (c) of this section and the other provisions of this chapter.

Paragraph (c) sets out the provisions that are to be included in a standard patent rights clause. The actual patent rights clause (at 37 CFR 401.14), however, adds provisions that aren’t specified by Bayh-Dole–especially paragraphs (e), (f), and (g)–which derive from the old Federal Procurement Regulations 41 CFR 9-1.100ff.

We might say, the standard patent rights clause itself violates Bayh-Dole and sets the tone for everything else. What Latker didn’t get in Bayh-Dole the statute he tried afterwards to work in to the patent rights clause, which he also participated in drafting. In any event, you see the basic Bayh-Dole exchange–if any nonprofit or small business that is party to a funding agreement obtains title to an invention made under a federal funding agreement, then it may retain title to that invention provided that it complies with the provisions set out in paragraph (c). Reagan’s executive order extends Bayh-Dole to all companies, so “nonprofit organization or small business firm” means, in practice, “any organization or company.”

Be really clear. Bayh-Dole here at 202(a) does not use “contractor” or “party to the funding agreement”–it uses “nonprofit organization” and “small business firm.” That is, the basic deal is not restricted to contractors but is broad. If an inventor assigns a subject invention to any nonprofit or small business (including, say, a startup), then that assignee can keep that subject invention if the assignee complies with the provisions of paragraph (c), which then becomes a defacto standard patent rights clause, even if there is no applicable federal funding agreement to go with it.

More clarity. Bayh-Dole does not say “subject to the standard funding agreement provisions as may be set forth by the Secretary of Commerce.” Rather, Bayh-Dole refers to its own paragraph (c) of 35 USC 202. It is this paragraph (c) that controls the basic exchange, not the patent rights clause at 37 CFR 401.14.

Federal agencies, when they use the standard patent rights clause, have agreed to conform to the standard patent rights clause, so contractors at least can rely on the standard patent rights clause in addition to Bayh-Dole’s paragraph (c). If an inventor assigns an invention to an organization or company that’s not also a federal contractor, the assignee, to retain the assigned title, is subject only to paragraph (c)’s requirement. No paragraphs (e), most of (f), or (g) from the standard patent rights clause.

The requirements of 35 USC 202(c) follow subject inventions from owner to owner. If an owner does not comply with 202(c), then the owner does not have the right to retain title, and falls outside of the basic exchange of Bayh-Dole. The invention is still a subject invention–but it won’t be if a federal agency then requests title under any statute or federal regulation now not preempted by Bayh-Dole. That is, the condition upon which Bayh-Dole preempts all other “Acts” (but for Stevenson-Wydler) is that the owner of a subject invention comply with Bayh-Dole’s 35 USC 202(c). The standard patent rights clause at 37 CFR 401.14 does come into play. It becomes part of each funding agreement, and so agencies also commit to it, and contractors can rely on that agency commitment. But 35 USC 202(c) is the broader provision, applicable to any nonprofit or small business that acquires a subject invention.

And just to be totally clear, let’s repeat. Bayh-Dole applies only to subject inventions, for matters of federal funding agreements. If a contractor doesn’t own an invention, then the invention cannot possibly be a subject invention. If the invention is not patentable, then it’s not a subject invention (except for the durn plant variety stuff). If the invention is not made “in performance of work under a funding agreement,” then it’s not a subject invention. And Bayh-Dole doesn’t provide any authority for anyone to force assignment of an invention to make it a subject invention. Indeed, paragraph (g) of the standard patent rights clause restricts how a contractor may acquire subject inventions of subcontractors. And the standard patent rights clause requires contractors to make all their inventive personnel into subcontractors for purposes of managing inventions. Bayh-Dole provides no mechanism to turn ordinary inventions into subject inventions.

If Bayh-Dole did force inventors to assign inventions so that those inventions became subject inventions, Bayh-Dole, a part of federal patent law, would require inventors to use the patent system, even against their will. That would be a bizarre outcome of federal law. The Supreme Court in Stanford v Roche rejected just such a thing for Bayh-Dole. The expert cheater’s version of Bayh-Dole is that it is against a law that offers you a benefit if you request it not to request that benefit. Sleight of hand.

Chase it down. When an inventor invents, under federal law, the inventor owns the invention. The use of federal funding does not change this result. The presence of federal funding in a broader project does not change this result. If an inventor is not a party to a funding agreement, then the invention cannot be a subject invention unless the inventor assigns the invention to a party to the funding agreement–to a “contractor.” If an invention is not “subject to” Bayh-Dole, then it falls under the federal law that Bayh-Dole then does not preempt. We are back to various statutes (if not mistakenly repealed) and executive branch patent policy. A non-contractor assignee may ask for an agency determination of rights, and might even get a favorable decision, especially from agencies that have made a practice of allowing private ownership of inventions made in projects receiving federal support. But there’s no way of turning a non-subject invention into a subject invention short of ownership by a party to a funding agreement.

Now, just to show how the sleight of hand works–or can screw things up–the standard patent rights clause requires contractors (let’s call them prime contractors, for clarity)–requires prime contractors–to require their employees (but for clerical and non-technical employees) to make a written agreement to protect the federal government’s interest in subject inventions (see (f)(2)).

Folks focus on the substance of the written agreement and don’t want you to see the effect of requiring prime contractors to require employees to make a written agreement. The very act of requiring the written agreement makes those employees parties to the funding agreement–they become subcontractors of the prime contractor in addition to being employees. Since inventors are now parties to the funding agreement, their inventions are subject inventions when patentable and made in the performance of work under a funding agreement. The implementing regulations provide a patent rights clause just for inventors–37 CFR 401.9, and that patent rights clause requires federal agencies to treat inventors as small business contractors under a subset of the business patent rights clause.

NIST makes a hash of this clever scheme to expand the scope of subject inventions (and therefore the scope of Bayh-Dole) by introducing (in May 2018) an assignment provision in the written agreement. According to NIST, inventor-contractors must agree to assign subject inventions to the “contractor.” Well, the inventor-contractors are now also contractors, so they could assign to themselves. And the prime-contractor is forbidden by the standard patent rights clause from requiring assignment of a subcontractor’s subject inventions as consideration for the subcontract–so the assignment in the written agreement cannot have anything to do with a condition to participate in the federally supported work–cannot be a precondition, cannot be consideration, cannot have the form “we will allow you to participate in the federally funded work if you agree to assign all inventions you make in that work to us.”

If the prime contractor can require the NIST assignment for any subject invention owned by an inventor, then Bayh-Dole once again becomes a vesting statute, since inventors are then forced to use the patent system and give up ownership of their inventions–as an extension of federal patent law. Just what the Supreme Court said does not happen, is not what Congress intended. NIST’s general counsel has gone public after the Supreme Court decision with guidance that ignores (or flouts) the Supreme Court decision. But on the off chance that NIST had something else in mind, perhaps NIST means that employees are to be required to agree to assign to their employers any subject inventions to which the employers already hold equitable title through some other arrangement that did not depend on the presence of a federal funding agreement or the use of federal funds or any subcontract (including the requirement to make the written agreement). Employers who have agreements or otherwise make arrangements that result in the employer holding equitable title to a subject invention must also require employees to assign legal title. Arcane, but whatever.

Oh, and screw all this. No-one complies with the written agreement requirement. Whatever university administrators put forward as compliant with the written agreement requirement generally is not compliant. They insist instead that employees (and non-employees) agree to assign (and do so, generally, upfront before any invention is made) all inventions (whether patentable or not, whether inventions or not). This, they argue, covers the standard patent rights clause written agreement requirement. Sleight of hand, cheaters. Or, “experts” at the Bayh-Dole table, where cheating is part of the game, apparently.

Inventors aren’t then made parties to the funding agreement. Their inventions are not subject to Bayh-Dole. And their employers have no special right under Bayh-Dole to demand, take, elect to take, have a first right of refusal, or anything else–and the NIST assignment language is specific to subject inventions, and under Bayh-Dole inventors don’t have to assign non-subject inventions to their employers.

Whatever is happening while Bayh-Dole has been in effect is not the result of Bayh-Dole–rather it is the result of people making it appear that Bayh-Dole operates when in fact no one complies with the law, federal agencies don’t enforce the patent rights clause, federal agencies don’t act on their rights within Bayh-Dole, whether to create additional patent rights clause in the public interest, or to protect the public from nonuse or unreasonable use of subject inventions, or to authorize others to make, use, and sell subject inventions for or on behalf of the government. Yeah, Bayh-Dole has been one big opportunity for the expert at the table to cheat us all blind. No wonder the “experts” are so all-in on preventing any changes to Bayh-Dole.

University faculty rely on folks setting up as experts on Bayh-Dole to be clear, accurate, and honest about the law. Instead, they encounter experts who are willing to cheat, to bluff, to misrepresent. Worse and worser–many of these experts believe that the cheating, bluffing, and misrepresenting is all virtuous because the “system” of institutional management of inventions is (to their minds) far superior to the patent system’s placement of inventions in the hands of inventors. Inventors, so the cheating folk believe, must be forced to give up their inventions to institutions (and to the state, in the case of public universities). Then those institutions should in effect attempt to “re-issue” patents on these inventions, by assigning each invention under the cover of an exclusive patent license agreement to a favored company that agrees to exploit the patent monopoly for profit. It’s not even a nice thought if you follow out its practical logic, but it sounds nice–until you see that for nearly all such inventions held back for exclusive licensing, most universities license hardly any, and of those hardly any licensed, hardly any of those result in use with benefit available to the public on reasonable terms. Universities don’t report on what they actually do. They report on what they aspire to do. They report proxy data that shows their level of activity. They conflate subject inventions with all the other assets they manage–whether patentable or not, whether federally supported or not. They never report what they do specifically do. Sleight of hand. Cheaters. Bluffing. Deception. Fraud.

Bayh-Dole enables the cheating, though it does not overtly authorize it. Bayh-Dole is like a prepared deck of cards, ready to be shuffled by an expert willing to cheat. Most people cannot see the cheat and think the deck is true and the shuffling is blind.

Bayh-Dole exists to restore a patent monopoly pipeline in federally supported inventions in medicinal chemistry passing through university and nonprofit patent brokers to the pharmaceutical industry. The history is transparent. Everything else is sleight of hand to make this pipeline possible, remove faculty inventors from the possibility of resisting it, expand federal dealing in patent monopolies to enable the same pipeline if a university refuses to take out a patent position, make all this government wide so inventions in medicinal chemistry can be harvested from the funding of any federal agency, not just the NIH, and make it appear that this approach in the abstract is the best thing in the world for the public. What a farce–but again, how easily the public is fooled when experts go bad. As Dante has it, a community has no protection from the intelligent fraud.

The only remedy, following the guidance of The Expert at the Card Table, is not to play Bayh-Dole games with universities with anything of value at stake. Only the foolish and desperate and indifferent would ever bring their best ideas within a university’s scope of claim to own or within reach of federal support. If Bayh-Dole is played right–as it is written, as the Supreme Court confirmed–then inventors own their inventions, they have no obligation to assign those inventions pursuant to Bayh-Dole, and they are not required to use the patent system.

The patent system does not require the use of the patent system. It is not a better idea that it should. And it hasn’ been better in practice–it has been much, much worse. It’s not a better idea that institutions should force inventors to use the patent system. It’s been worse. It’s not a better idea even in the particular case of inventions in medicinal chemistry that the pharma industry should gain monopoly control not only of particular drug candidates but whole classes of thousands of compounds which they can then pick over at their leisure or never at all. It’s that simple, that direct. Look at drug prices. Look at how drugs make acute conditions chronic more than they prevent or cure. Only the experts who cannot be honest won’t agree that’s the case. Now you can tell who they are and why they so desperately want to shut down any public debate that does not preserve their ability to cheat you blind.